The Wall Street Journal interviewed accounting and financial professionals who said Binance's efforts to expose its reserves highlighted financial danger signs.
After FTX's crash, Binance introduced a Merkle tree-based proof of reserves mechanism. Competitors called the attempt "pointless" for omitting obligations.
And internal control effectiveness.
According to accounting and financial experts interviewed by The Wall Street Journal, Binance's efforts to increase the openness of its reserves also revealed warning signs in the cryptocurrency exchange's finances.
According to a former investment manager and member of the Financial Accounting Standards Board (FASB), the audit firm Mazars' report does not inspire investors with confidence regarding the exchange's financial standing because it is devoid of details pertaining to the effectiveness of internal controls and how Binance's systems dispose of assets to pay off margin loans.
The lack of details regarding Binance's business structure was another issue that the newspaper's sources identified as a concern. Since Binance has been through a corporate reorganisation for almost two years, the business's chief strategy officer, Patrick Hillmann, was unable to identify Binance's parent company.
Additionally, differences in the aggregate Bitcoin liabilities were emphasised. Without including assets lent to customers through loans or margin accounts, the exchange's proof of reserves reveals that Binance was 97% collateralized, meaning that the 1:1 ratio of reserves to customer assets was not met.
Binance's "proof of reserve" report does not address the effectiveness of internal financial controls, does not express an opinion or assurance conclusion, and does not vouch for the figures, according to John Reed Stark, senior lecturing fellow at Duke University School of Law and former director of the Securities Exchange Commission's Office of Internet Enforcement. I spent over 18 years working at SEC Enforcement. I think about red flag in this way.
Binance unveiled a proof of reserves mechanism last month that enables users to validate their assets using a Merkle tree in the wake of FTX's crash. Competitors, meanwhile, derided the attempt as "pointless" because it left out liabilities.
On December 7, Mazars released the findings of its audit of Binance's Bitcoin holdings. The cryptocurrency exchange reportedly has control over 575,742.42 Bitcoin that belong to its customers and were valued $9.7 billion at the time of the report, according to the international audit group. The company stated that according to the process, "Binance was 101% collateralized."
Customers' spot, options, margin, futures, funding, loan, and earn accounts for Bitcoin and wrapped Bitcoin were included in the report's scope (WBTC). In addition to the Bitcoin network, the investigation also covered BTC wrapped on Ethereum, BNB Chain, and BNB Smart Chain, according to CoinGabbar.
